What we cover in Episode 8
You can have the best customer acquisition team on the planet, but if you're user onboarding sucks, the likelihood of you becoming a successful company are pretty slim.
Improving user onboarding for both free and paid users of your product is one of the most impactful projects you can take on to grow revenue.
Another vital part of the puzzle is choosing the correct go-to-market. One of the most common questions SaaS companies struggle with is whether they should select freemium or free trial.
In this episode of the GrowthTLDR we're joined by Ty Magnin, director of marketing from Appcues as we discuss:
- Why humans love checklists and how you can leverage them to improve your onboarding.
- How to decide on the user actions included in that checklist.
- Why your user onboarding needs to align with your go-to-market
- We discuss some excellent new data released by ProfitWell on the benefits of freemium over a free trial.
And as a bonus, we talk about the time Scott nearly died when out surfing !!
Podcast Transcript
Kieran: Welcome everyone to yet another episode of the Growth TL;DR podcast. We've got you covered with the articles, interviews, and experts, and actual case studies from fast-growing companies that you will love.
And I'm here as always with my co-host Scott Tousley.
Scott: What up everyone, and today, we are joined by Ty Magnin from Appcues. What's up, Ty?
Ty: Hey guys, great to be here.
Scott: Yeah, thanks for coming on. In today's episode, we're gonna cover a bunch of exciting topics. We're going to get into user onboarding, a critical component for growing companies, and cover the ongoing debate, should your go-to-market be freemium or free trial. We're going to go through some excellent data on the benefits for both of these options. And Ty is here to provide his thoughts, fresh from our surfing trip in San Diego, where I learned he's a much better surfer than I am.
Kieran: Did I ever tell you my surf story?
Scott: No, let's hear it.
Kieran: All right, so I went surfing once in Sydney, and I like to be instantly great at everything, and I got up on the board a couple of times, and thought, "Wow, this is the thing I'm meant to be great at surfing. I'm pretty amazing at it." And I went the next day to Bondi and rented out the most expensive surfboard they had, and I didn't realize when you're a learner, they make you surf on like a door, and when you're a professional, you're surfing on like a toothpick. I literally couldn't ... I couldn't even get on the board lying down to get out into the sea, so I had to sit on the beach with my $250 surfboard that I'd rented for the day, and try to look cool. I have a lot of respect for you two guys who can surf ... I do not know how to surf.
Scott: I have even more respect for Ty because he surfs in Massachusets and the Northeast, how cold does it get in the winter?
Ty: In the winter, like slushy, right? I think typically it's like 38 degrees in February, March if they go out for one of those swells. Yeah, you need a really thick wetsuit.
Scott: Yeah. No, I bet. Nice.
Ty: Scott, you had a surfing story of your own that you promised me, and I know we're spending a lot of time on this, but can I please have the surfing story where you almost died?
Scott: Yeah. So, I went with my friend David Kelley, David was actually on one of the previous podcast episodes, and we got a surf lesson from a WSL Pro, so that's called Word Surf League Pro. It's kinda like getting a lesson in basketball from an NBA player.
So we did that through Airbnb Experiences. He took us up to Malibu, and there was one wave that came through, that I just got fucking destroyed. I was going in, and I tried to drop in on a wave. I ate shit, another guy came in right behind me, hit me, and we're both underwater, and we're like grabbing each other underwater. We pop back up, we realize our leashes are tangled. So then, another wave comes and knocks us down, where another guy comes in, and then we're like, undoing our leash underwater.
Finally, I have my leash undone, then a fourth wave comes in, because I'm caught on the inside, and just completely strips my board out. So now I'm like being pulled back in the rip current with no surfboard, nothing, and I'm just going backward into the ocean. Finally, a big enough wave comes through and it just throws me over the fall, so over the top of the wave, and just boom, come down on the sand. And then, somehow I made it into the shore and got my board.
So that was the closest I've ever come to death, easily, surfing.
Kieran: That's way too dangerous for me.
Scott: Yeah. Yeah, it was-
Kieran: Not an Irish person sport.
Scott: Well speaking of, let's dive right in headfirst, just like surfing, into topic one
1. Why our brains love checklists … and how checklists impact user onboarding
Scott: Topic one: Why our brains love checklists and how checklists impact user onboarding. We're going to dissect and talk about this in general. But, we got this inspiration from an article that was posted on the Appcues blog. It's written by Margaret from your team, Ty. It's called, "Why our user's brains love checklists."
For all the listeners, it has a lot of real-world examples of user onboarding checklists and has excellent references to user psychology and principles in human behavior in general. The article opens with a story about pilots. If anyone's read the book Checklist Manifesto, it's by Atul Gawande, I believe.
It's a reference to that. Pilots use checklists before they take off on a plane. Surgeons use checklists before they do surgery. So, as you're thinking about your user onboarding strategy, it's the same general principle, it helps users not make mistakes and guides them through the process. There's a great example in the article from PayPal's checklist which they use to guide users through the process of setting up a business checking account. And then, of course, more references to human behavior principles and user psychology, stuff like the Zeigarnik effect, that talks about once we start a task, it's psychology uncomfortable for us to not finish it.
So, it's a great article. It's at Appcue's blog. If you google their blog, "Why our user's brains love checklist," definitely give it a read and we'll include it in the show notes.
But Ty, we have a question for you on this topic. We know you guys had been thinking a lot about checklists at Appcues. The first question that comes to mind is, how do you decide what to put in the user onboarding checklist?
You can put everything in there. So how do you decide what's a must have on the checklist versus a nice to have?
Ty: That's a great question. Like a lot of my advice on onboarding, I typically start around, "Well, it depends," right? And in this case, I think the dependencies are around how much you spent on onboarding, how big your user base is, how complicated your product it. Let's start with those kinds of one at a time.
How big your user base is matters because it can let you figure out , the more volume of data you have based on what users have done to be successful with your product against what they have maybe not done, or what they did to not be successful with your product can allow you to potentially run a regression in order to figure out like, what are the most common events that a user does that correlate with success. And then find those three to five top items that someone does, and throw those into the checklist.
Or, I mean, this is another dependency, if you're at a pretty early stage and you don't have all that data, you might have a gut on it. Maybe you've watched some user sessions in full story or you kind of know how the product is meant to be used, and that's probably good enough if you don't have the amount of data that a HubSpot might have, or what have you.
And then, the third dependency I think is one how complex is your product, and how sophisticated is your user? A highly advanced product's going to require more handholding than a straightforward one, like Instagram or something. And then how sophisticated is a user? If you're selling software to developers who know how to use software, and it's a pretty simple product from what I understand. You don't need that much onboarding.
So, I know that's not a simple answer. If you want the simple answer, take three to five things that you think a user needs to do to get set up, but you should understand that there are layers of sophistication and complexity that you can absolutely approach when you're ready to do that.
Kieran: I think you touched on something that's really important because we went through two different iterations of that during our time at HubSpot, where we didn't have enough data to run any regression analysis.
So you have to put things into the checklist that you think are going to be the things that that user finds valuable. And then over time, we were able to run regression analysis to determine the characteristics that correlated more strongly to that person retaining and upgrading, and then that can help you better understand what actions you want to put into that checklist.
I think it's interesting you keep referencing three to five because Do you feel like you should keep them to a minimum, not to overwhelm users? Do you have like a magic number in your mind?
Ty: We don't. I really hope that we get that data soon at Appcues. Okay, so to be transparent, we just launched a checklist product last week. I think it was probably the day after Scott and I met up. Regardless, we are hopefully going to have a treasure trove of data about onboarding checklists soon and hopefully can release some interesting insights into that.
Yeah, the reason I say three to five, Kieran, is because it's simple and easy to keep in mind. There's not too much load there. It doesn't feel like a daunting task. And also, you're putting checklists in your app, and it looks better with fewer things.
Kieran: Cool. The other thing that's really interesting I think is when we were trying to figure out some of our onboarding, one of the conclusions, and this is the wrong way to do growth, that I jumped to, was like, oh the thing that's gonna crush onboarding and just change our numbers is 30 second videos right? 30 second short videos to figure out how to do the most high-impact actions. We ran experiments around introducing, and it didn't work.
So, it's an excellent example of why jumping to the conclusion is not the best thing to do when trying to figure out the problem.
For you, how do you think about determining the best onboarding tactic? Whether it's a checklist, which you guys offer, or product tours, or video tutorials. How should someone start to think about the different tactic they should leverage for their onboarding?
Ty: Yeah, it's a good question. I think again; the answer is around some dependencies. Who's your audience? What does your product look like? And then I think you have to think of it in terms of like, what can compliment your product nicely? If your UI is super simple, maybe you don't need a product tour with all these tooltips. Perhaps a checklist is enough. And if your product is very complex, perhaps you need an introductory video that restates your mission statement and like why people are there, maybe has some ROI in there. And then you can move into a tooltip tour or something like that.
I mean they're experiments, and you should take that sort of growth marketing experimental approach. Try one thing, measure it, do it quick and dirty. If it works, double down. If it doesn't, try something else.
Scott: Yeah, that's fair. Also, going back to a point you made earlier, a lot of it depends on the complexity of your product. I think if you have ... Correct me if you think this is right or wrong, or just general thoughts on it. If you have a relatively complicated product that does need some explaining, something like video, that could come in to help guide users through the process if you can't afford to have account managers walk someone through.
I mean, I think that largely depends on the ASP of the product, that average sales price of the product. But whether it's video or checklist or product tours, some of it depends on how much explaining needs to happen after the signup versus before the signup. Posting a picture on Instagram, pretty easy. Setting up a CRM, not so easy. There are specific points where, to what you were saying, it does depend based on the complexities and the product and the audience and everything.
Ty: Yeah, as you also just stated Scott, your go to market strategy needs to align with your onboarding. If it is a low ASP, and to restate it, and you can't give them a CSM or what have you, you might need video. Your best onboarding tactic might be having killer webinars or live chatting the product; I don't know. But it does have to compliment your business model.
Kieran: Yeah, I think you, again, touched on a really interesting point because it's, again, something that we went back and forth in trying to figure out, where it's like if the product is complex, do you have an intro video that explains the mission?
And that actually can get lost sometimes in growth teams, right? In that there's this higher kind of value to the company, there's this mission, there's this thing that people feel a connection with, and it's not just like, "Here's how to use the product."
It's, "Here is why this company is important. Here is the mission we are on," and we enforce that, and then teach them how to learn the product, 'cause we certainly tried to experiment with that because when you come into HubSpot, we're like, should we onboard someone onto the product, or should we onboard someone onto inbound as a methodology, right? Should we get people excited about the methodology, that the tools enforce?
I think it's a significant thing for companies to think about, that if your product is complicated and it ties into a grander mission that your audience is passionate about, then there's something with the onboarding that should connect that person to that mission before you have to explain the tools.
Ty: Definitely.
Scott: I did want to jump to a slightly different part of onboarding, and that's should you or rather, can you do user onboarding across channels? Not just within the app, and thinking about more reengagement. So, how do you think about when you're building your onboarding strategy thinking about reengagement emails? Someone dropped off at a certain step. At what point do you or should you consider ad retargeting, mobile push, anything else?
Ty: Yeah. I mean, I think those are all great ideas. I do think of email more and more now as a tool to re-engage someone as opposed to like ... to initially start the conversation, especially with onboarding, right? I think of the in-app onboarding stuff as a bit of the steak and potatoes and a thing that you want to spend a lot of time on probably.
But people do drop off after checklist item two before they ever get to three, and maybe you give them 24 hours, and then it might be worth pinging them with a message that correlates to sort of either ... action oriented for, "Hey, get back to the app and do this thing," and if they don't engage with messages like that, you can kind of back off and think more about that motivation, that psych level. See if you can reignite interest via email. I guess push notifications can work the same way and so can ad retargeting.
You know, it's funny, we spend so much money on retargeting ads to like get that acquisition when it might be more apt to spend that money on users that are lower in the funnel, right? They're on the goal line, or they're on the five-yard line, and you want to get them across to a paid account or even just to get activated on their freemium account.
Kieran: Yeah. We did do that, right Scott? We retargeted our onboarding across most channels. We did it on email, and we did it on ads. Scott probably has better knowledge of this than me because he was our email guru and wrote most of the stuff and set it all up. I think email had somewhat pretty good performance. I think it's harder to figure out ads because people might come back in through the website vs. the ad because you remember that after seeing an ad, so it's not directly coming in through the ad, so it's hard to know, is there a lot of conversions and things like that going on.
Scott: Yeah, exactly.
Kieran: I agree. I think that money is well spent on ads throughout different stages within your funnel. We would split up our lists into even actions people have taken, and we target based upon those different actions. So like, very small groups of people.
Kieran: Let's jump into a quick question that is a favorite of mine because it differs in so many different companies, which is, and something that again, we went through so many different iterations of, is where does onboarding live within your team structure?
Who has ownership over that? If that ownership isn't owned by marketing, how do the marketing team interact with people who look after onboarding? Or maybe they're the same team?
Ty: Great question. So, onboarding up until recently was owned by a product engineer at Appcues. They had all the skills to be able to deploy into our production app, use our tool within that app as well, sting up our analytics, do all those things, and it did fall into product. You know, for a long time we had marketing just purely focused on acquisition. And we were sort of on the council of this person who is doing onboarding because we have a lot of good minds here on the marketing team.
That has changed recently. We now have a growth marketing engineer of sorts that has taken that on. The reason why we think it fit better under marketing is that our marketing team is focused on the entire user journey.
So not just the acquisition, but also activation, free to paid, and retention, we measure all those things, so we need to be able to have more ownership over them.
So you know, long story short, it is now under marketing, and we are doing a lot to improve around onboarding and then teach some of those learnings back to our customers and our audience.
Kieran: Yeah, the reason it works well, whether it's marketing or whether it's ... I've talked to a lot of companies who have now some of the marketing functions reporting into the product team, or have some of the product sit within marketing.
But the thing I do think a lot about is that the core acquisition team and onboarding team should be one in the same because if they're separate, what ends up happening is there's this team running onboarding, and their metrics are going up and down, and the marketing team are spending more money on this platform or doing these different things that are fluctuating those numbers. And yeah, you can connect, and you can all have meetings and things like that, but there's a lot of good synergies between having those within the same team. Like, the people who are acquiring people and the people who are onboarding accountable to the same thing because then it forces those people to also think further down the funnel.
And again, there are many different iterations. I know, Atlassian, for example, who is one of the best companies who do this, although it's a free trial, have a team who acquire, and they acquire up to the first sign of life. That person's done something meaningful with the product, and then the product team take it over and try to activate them. But I do think there's like very, very good reasons to combine them.
2. Freemium vs. Free Trial
Kieran: Well, we are going to go into the second topic, a question that I think most companies ask themselves when they're either starting out or even when they are some way through their business model, and that is, why choose freemium versus free trial, or why choose free trial over freemium?
We're going to focus a lot on a ProfitWell article that came out recently, where they have some great data around freemium versus free trial.
ProfitWell shared data they have from different SaaS companies and one of the things that they clarify in this post is freemium is an acquisition strategy, not a monetization strategy. So, for the most part, when I've thought about freemium, or when I've discussed freemium with other people, it does not make your funnel monetize at a better rate, as in convert people at a better rate, but it does help you open up the top of the funnel.
So I guess, let's kick that out to Scott and Ty. Ty, I know you guys have a free trial, so what kind of discussions have Appcues had in the past when you're trying to think through freemium versus free trial?
Ty: I think a lot of it, and we're talking go to market strategies, right? So, a lot of that depends on the market, and what position you want to take within it. I think a freemium strategy can work really well for a company that's trying to tackle a broad market. I don't think it'll make sense if you're building a tool for enterprises that are used in a particular manner. If your TAM is 50 companies, you should not have a freemium go-to mare
And then, I think another piece of it is, how complex is your product, right? Back to that point. If it's really hard to use, and you can't get value out of it unless you've gone through 20 hours of implementation, and you need a sophisticated integration, et cetera, et cetera, like freemium doesn't make sense for you either.
Kieran: Right. And one of the things you were telling me pre-us recording this episode, that I think is interesting just to maybe touch on is, some of your thought process around freemium for Appcues, or free trial for Appcues, and that there's some setup required for Appcues to begin using the product and that does influence the thinking behind whether you guys should have a freemium layer or not have a freemium later.
Ty: Yeah, that exactly right. I mean, to get started with Appcues, you have to install a little bit of JavaScript into your product. And then you'll have to ... I mean, there's just an installation process, and it's a bit technical. And it's something that is not just like, flip a switch and go unless you use Segment, but that's another story. And so, because of that, it's just ... Our product is complex. It has a high value, but it doesn't quite make sense for us to have a freemium version of it because you couldn't use it without any assistance. It's a little bit hard to do that.
I think that's moreover why we decided to lead with a free trial, not so much a freemium product.
Kieran: And there's another ... There's a great article that I'll put in the show notes from a guy named Tony Ulwick, and it's a Jobs to Be Done growth strategy matrix, and it's basically a quadrant that has four different go to market.
There are two kinds of different go to markets that tend to suit freemium that I agree with, that he has a disruptive market where you have an inferior product, and you're trying to disrupt that market at a lower cost, which is excellent for freemium. And an excellent example of that is actually Canva, right?
You can call their product inferior to Adobe Photoshop, but it's purposely inferior in that it doesn't have as many features, but they're trying to simplify the design. They're disrupting that market by giving you a freemium offer, and then they have grown to over 10 million users.
And then there's another go to market, which is the dominant strategy, which is when you have a better product, and you want to dominate that market. A good example is Spotify, who have a freemium product, and they're testing a different version of that in Australia at the moment, but that's a whole different episode. Uber, Netflix, these kinds of companies who have the best product and wanna eat up market share. I think they're two good examples of go to markets that work for freemium.
Ty: I think those are, again, two ... Those are all examples, Kieran, of companies with huge TAMs-
Kieran: Right.
Scott: Another interesting data point from that ProfitWell article is retention is better for customers who upgrade to the paid plan via freemium, versus a free trial.
So, if I sign up for a freemium product, and then I end up purchasing, I'll retain over the long term because I got to experience that value over not a cutoff amount of time. But the downside, based on this data from ProfitWell, is that freemium has a lower conversion of signup to purchase for that net new purchase. However, when you drag out the spreadsheet over the long term, the revenue retention is higher.
Sort of makes sense. I could see how that could go either way. There's a lot of complexities depending on the product and the market and everything. Ty, what are your thoughts on that general data point? Do you think that makes sense? Is there something that seems a little fishy?
Ty: Yeah. I think there's some logic in it, right? When I unpack it, it doesn't surprise me, but I do wonder if I'm writing the narrative in retrospect.
But the way I see it, a freemium user that's going to upgrade has already received value from the product, has already aligned themselves with your brand and is therefore pretty damn sure that they want to be using that thing for more. Whereas, I think a free trial is, it's just the demo of 2018. So many of our SaaS products are now month to month, so it's easy to switch. It's easy to try. People are kind of happy to pop in their credit card and cancel and switch and do those things with high frequency.
So yeah, I can see that. Like, if you're putting in your credit card to a free trial, you might be like, "Oh, I just need a little more time." Whereas, if you're using it ... using like Evernote for a year on the freemium plan, and one day you want to upgrade, it's because you love the product and you want more out of it. It's a different purchase.
Scott: Yeah, that makes sense. And Kieran, I don't know if you saw data in that ProfitWell article and if it's not in that article, a different article, on LTV, of free trial verse freemium, because I think at the end of the day, that's what you'd want to look at. You know, I could go down either route, which route will largely depend on what is your LTV over the long term. Was that data point in the article that I might have missed or a different article?
Kieran: They didn't have LTV that's an excellent metric to focus in on. I didn't see that metric in the article. I think, coming back to something ... Are both of you Evernote users? I know you are Scott.
Scott: Yeah.
Ty: Yeah, I am.
Kieran: Are either of you paying for it?
Scott: Nope, been using it for like four to five years now and I don't pay a dollar.
Ty: No
Kieran: Right. So here's the interesting thing because I think, Evernote, is an excellent example of a company that has leveraged freemium and it should work the way you said, Ty. It's like, well, I love this company, they're doing freemium, and I will pay them money.
But the problem with some of the companies, and Evernote's a great example is, every time ... If you have 50 Evernote users in a room, the likelihood is very few of them are paying because Evernote has struggled to get their monetization points right. I think that is the key to success in freemium, is understanding what features you can give away that still gives people value. Your product becomes your brand, and you are a product-led company, 'cause people go, "Oh, this is a great product," and then what features you need to gate and have people pay for actually to make real money. I think that is one of the real balances to get right.
Ty: So, Kieran, how do you think you figured that out? How do you as a growth team or growth practitioner figure out what are people willing to pay for and then how do you go and experiment with that?
Kieran: I think that's a great question. If you're a company who is going to do freemium, and I'm sure Scott has good thoughts on this, but if you're the product manager, the likelihood is you have done enough research to determine what is valuable of that feature of that product to the users. And what are the parts that are valuable enough that will help them spread the good word about how great that product is? And what are the features and things that they'll need so much that they're just going to pay you money?
Or there's the example of Loom, right? Loom is a company that we love in HubSpot, and I think when they release paid features, we'll probably want to use them. Because they're just going to be a natural fit for the way that we use the product today. But I don't think it's easy to get right. So I don't know if I have the exact answer.
What are your thoughts on that, Scott? I know that's something that you're thinking a lot about right now.
Scott: I think it's just getting down to the point to where you want to have ... Let's say you have a freemium model if you have a freemium model, and your free users aren't retaining over the long term. Well, you can kiss your freemium model goodbye because you might as well have a free trial at that point. And so, it's one, get people sticking over the long term for the free product, but then figuring out what are those actions that happen every couple times a week, or whatever the frequency is that's just enough to be like, oh, I really need to do that, and I'm willing to pay.
But you're only going to trip that limits after you hit a certain point. So like this is something we ... This is discussed in another episode, but where we talk about PQLs and product qualified leads, and how do you determine what are those triggers, at what point do they come in? Well, they should come in after your freemium user, if you go down that path, are retaining because if they're not retaining, it's not that useful.
And going back to, Ty, your original point, back in the activation part of the episode. Largely, it depends. What's your product? How can you get someone actually to stick around? There's no perfect playbook for it, and it's a complicated problem to try to solve, but also, probably the most critical problem to answer if you do have a freemium model.
Kieran: I think it's just something you have to be mindful of. It's just a balancing act between the more I give away for free, the faster I can grow my user base, but you know, the more I add in PQL points, the faster I can monetize that base. I think it's the balance of that company; it's a company strategy. I believe Loom is a company who purposely give away a great product for free because they wanted to dominate a market and try to grow fast. And now they're going to have to try to figure out how to monetize that base. It's never an easy matter.
Scott: Yeah, and the smart thing too, by going down that strategy and following through with that is you have so much product retention data that you can look at, what are those sticky features? Where can we put those limits in?
Kieran: Two other points to end this topic with is, I don't know if this is an interesting point, to be honest, CAC is cheaper for freemium companies? I think if it's not, you're in pretty big trouble.
And then, the most exciting chart they shared, which is one I was talking about earlier, is people's willingness to pay for tiers has increased. So, we will share this chart, but, you know, five years ago, people on average, for freemium upgrading to a paid product, their willingness to pay was $147, and one year ago, it's $784.
It seems like people are pretty okay with using software for free and then upgrading to a higher priced product, which is super interesting to me because HubSpot started their freemium plan with a $50 product, and then we've added on higher tiers, and we're definitely still figuring out how to get people on to the higher tier from freemium, 'cause it's a more significant jump, and I think this stood out to me as, wow, that's pretty interesting that I could adopt free software and then pay like such a significant amount of money.
Ty: Yeah, I think it's interesting. I'm trying to think of the companies that are pulling that north, right? I think InVision is one company that does this better than maybe any others, they have their suite of free products, and then they do an excellent job selling the Enterprise package to those companies that are on these freemium plans.
Kieran: Ty, if people want to get in contact with you, where is the best place for them to find you?
Ty: as well. You can find me @tymagnin, that is T-Y-M-A-G-N-I-N, look forward to continuing the conversation there.
Scott: Great. Well, thanks for coming on the show, Ty. We will see everyone next week. Until next time, have growing.
Kieran: Happy growing everyone. Stay safe on those surfboards.
What to Check Out From This Show
1. Why our brains love checklists … and how checklists impact user onboarding
2. Why Choose Freemium vs. Free Trial
3. The Jobs to be Done Growth Strategy
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